China Economic Review 23 (2012) 729741

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China Economic Review

Can grain subsidies impede ruralurban migration in hinterland China?

Evidence from eld surveys
Lei MENG
Wang Yanan Institute for Studies in Economics (WISE), the MOE Key Laboratory of Econometrics, Xiamen University, Fujian, China 361005

a r t i c l e i n f o a b s t r a c t

Article history: In this paper I examine if China's grain subsidy program keeps farmers from engaging in
Received 29 September 2010 migratory work using self-collected panel rural household survey data from Zhijiang, Hubei
Received in revised form 17 February 2012 province. Making use of Zhijiang's unique geographical features, I construct a treatment and
Accepted 21 February 2012
a control group and use a difference-in-differences methodology to identify the subsidy effect
Available online 1 March 2012
on migration. My results suggest that the grain subsidy policy does keep farmers at the rural
origin.
JEL classification: 2012 Elsevier Inc. All rights reserved.
J61
R23

Keywords:
Migration
Agricultural subsidy
Rural China

1. Introduction

China's agricultural policy embarked on a new course since 2004. Motivated by the concern for grain security, the desire to
reduce the ruralurban income gap, and the pressing need to protect agriculture after accession to the World Trade Organization
(WTO), China reversed its predatory taxing and pricing policies toward agriculture. It repealed the agricultural tax and began to
subsidize grain production through direct cash transfers to grain farmers. Can a grain production subsidy program keep the po-
tential rural migrants from ruralurban migration? I use a difference-in-differences methodology to examine whether the grain
subsidy program can reduce the probability of farmers engaging in migratory, off-farm work in the hinterland province of Hubei,
China.
This paper adds to the limited number of papers studying the impact of China's grain subsidy policy using micro data. There is
an emerging literature addressing China's transition from taxing to subsidizing agriculture. Using aggregate data Gale, Lohmar,
and Tuan (2005) is one of the first papers to give a descriptive analysis of China's agricultural policy change and it shows that
the subsidies had little impact on raising grain production in the year 2004. Heerink, Kuiper, and Shi (2006) uses a village level
computable general equilibrium (CGE) model based on data collected from two villages in Jiangxi province and also shows
that the direct income support payments to grain farmers and the abolition of agricultural taxes and fees did not increase grain
production in 2004. Also using a CGE framework, but in contrast to Heerink et al. (2006), Yu and Jensen (2009) shows that the
tax repeal and grain subsidy implementation raised grain production and improved farm income during 20042005. Using a

Tel.: + 86 592 2181675; fax: + 86 592 2187708.

E-mail address: lmeng05@gmail.com.

1043-951X/$ see front matter 2012 Elsevier Inc. All rights reserved.
doi:10.1016/j.chieco.2012.02.005
730 L. Meng / China Economic Review 23 (2012) 729741

partial equilibrium trade model, Hansen, Tuan, and Somwaru (2011) provides a good overview of the current agricultural and
trade policies in China and studies the impact of China's agricultural policy shifts on domestic and international commodity mar-
kets. The authors find that domestic production slightly increased as a result of the agricultural reform but its impact on interna-
tional markets and prices was quite small. Huang, Wang, Zhi, Huang, and Rozelle (2011) is the first paper that uses a nationwide
household level data set to examine the impact of the subsidy on grain production decisions and on input use. It reveals that for
the year 20072008 the subsidy had no effect on either activity. Unlike the previous papers that focus on the production effect of
the subsidy program, I investigate if farmers suspend ruralurban migration as a result of the subsidy program.
In the course of economic development, a general observation is that poor countries start off industrialization by taxing the
agricultural sector (Schiff & Valdes, 1992). The switch from taxing to subsidizing the agricultural sector occurs when the com-
parative advantage of agriculture along with its share in national income diminishes, making it politically easier to respond to
agricultural protection lobbies. As China commenced income redistribution to the rural sector through the grain subsidy pro-
gram in 2004, it signals that the country is treading to some extent the earlier paths of Japan and Korea in switching to protecting
agriculture as it gets richer. 1 But China also made this switch in the middle of the industrialization process; the country's trans-
formation from a rural to an urban society is far from complete. How income redistribution schemes favoring the rural sector
shape the scale and pattern of mass ruralurban migration is therefore an important question facing Chinese policy makers.
The available literature studying the effects of income redistribution schemes on the rural community in developing coun-
tries has mainly focused on the impact of conditional cash transfer programs. Among the limited studies on how conditional
cash transfers affect ruralurban migration, the Mexican experience receives the most attention. There are few conclusive find-
ings. Researchers find that the Mexican Progresa program, a publicly funded conditional cash transfer program (conditional on
household health check-ups and school attendance of household children) targeted at poor households at the rural origin, re-
duces MexicoUS migration but not domestic migration (Steckov, Winters, Stampini, & Davis, 2005). Angelucci (2005) also
finds that the conditional cash transfers reduce migration of the direct recipients, but the overall effect of the Progresa program
is to increase MexicoUS migration. The Procampo program, another large-scale decoupled cash transfer program to farmers in
rural Mexico implemented as a result of NAFTA, is found to negatively impact both permanent and temporary migration
(Gonzalez-Konig & Wodon, 2005). This paper complements the previous studies by studying how farmers in China react to
the grain subsidy program, which is essentially a conditional income transfer program to grain farmers.
I use a difference-in-differences methodology to identify the subsidy effect on migration using the rural household survey data
I collected in Zhijiang municipality, Hubei province. In Zhijiang, rice and cotton are the two most important agricultural crops.
Because rice and cotton demand different soils and irrigation systems, traditionally farmers have planted cotton along the river-
banks of Zhijiang, while the inland of Zhijiang has been irrigated to grow rice. Since the subsidy is on grain production and not
cotton production, I use cotton farmers as the control group for the treated group of rice farmers. My empirical results show
that the grain subsidy program reduces farmers' probability of engaging in migratory work, and the results remain robust
when the effects of crop price movements as well as the effects of the tax repeal and the costs of agricultural production are
taken into consideration.
The paper is organized as follows. In Section 2, I discuss the Chinese agricultural policy shifts and describe the local implemen-
tation of the grain subsidy program in detail. In Section 3, I discuss the contributions of the available migration theories in
explaining the impact of the grain subsidy program on migration decisions. Section 4 introduces the data used. Section 5 presents
the treatment and control groups for the analysis. In Section 6, I set up the econometric model, give and interpret the estimation
results. Section 7 concludes.

2. China's agricultural policy shifts

Farm income had long been taxed in China, the practice of which can be traced back for more than 2500 years. In recent
decades, China artificially depressed the price of agricultural goods to feed industrialization. The direct and indirect taxes levied
on the agricultural sector since the 1950s coupled with a rigid ruralurban institutional arrangement locked the Chinese farmers
into an extraordinarily low level of income. In the 1980s and 1990s, the Chinese government indirectly supported the agricul-
tural sector by subsidizing the procurement prices of farm output, storage, and the export of grain. But most of these subsidies
were captured by state commercial enterprises and local governments, farmers received little benefit (Park, Wong, Ren, &
Rozelle, 1998). In 2002, the various rural taxes and fees were consolidated into a single agricultural tax of 8.4% of each house-
hold's value of agricultural production. 2 In 2004, a phasing-out of the agricultural tax commenced (and the tax was eliminated
nationwide on 1 Jan 2006). Specifically, the eliminated taxes included the agricultural tax, the tax on specialty crops (except for
tobacco), and the tax on grazing livestock. In addition to the tax repeal, China started to subsidize grain farmers nationwide
through cash payments.
The switch from taxing to subsidizing agriculture took place in China at a time when agriculture's share of GDP had fallen from
35% in 1970 to 15% in 2004 (NBS, 2005). By 2004, the revenue of the agricultural tax was no longer an important share of the

1
For a detailed discussion of agricultural protectionism and of the experiences of the other East Asian countries, please see Anderson and Hayami (1986). For a
global perspective, please see Anderson (2009). It is interesting to note that the Chinese experience differs from that of Japan and Korea in that in these other East
Asian countries, it was farmers who succeeded in lobbying for higher levels of agricultural protection. In China, the switch from taxing to assisting the agricultural
sector came as a top-down policy decision that signaled the government's renewed attention to the agricultural sector after WTO accession.
2
For a review of China's agricultural experiences and the government's intervention in the sector since the 1950s, see Huang, Rozelle, Martin, and Liu (2007).
 L. Meng / China Economic Review 23 (2012) 729741 731

central government's fiscal budget. The agriculture-related taxes 3 amounted to 3.7% of the government's tax revenue in 2004,
compared to 38% in 1950, 11% in 1970, and 4.8% in 1980 (NBS, 2005).
Some of these changes in agricultural policy have been driven by WTO accession. Since China's entry into WTO in 2001, pro-
tecting agriculture has become more difficult to do as China must comply with WTO rules. Under WTO regulations, China faces
no limit on agricultural subsidies under the green box category, which includes subsidies that are non-market distorting; for
example, government investment in agriculture, and its technology, infrastructure, irrigation, environment controls, and other
public works. In particular, payments made directly to farmers that do not stimulate production also belong to the green box
category. Also as specified in China's WTO accession agreement, the country can pay potentially market-distorting subsidies
under the amber box category up to a maximum of 8.5% of the value of its agricultural production. Some researchers
(Cheng, 2008) deem China's direct cash transfers to grain farmers as decoupled income support, thereby belonging to the
green box category. 4 In 2004, the total grain subsidy amounted to 0.7% of China's agricultural output and in 2009 the share
rose to 3.47%. So the grain subsidy China commenced in 2004 is in line with WTO regulations regardless of which category
the subsidy falls into. This dispels doubts in the international community that China could keep its WTO promises while com-
mitting itself to protecting its agriculture. 5
From 1996 to 2001, under the green box category, China's domestic support to its agricultural sector increased from 101 to
280 billion yuan (He, 2005). This support included agricultural infrastructure investment, expenditures on grain storage for
food security reasons, environmental controls, and regional aid programs. However, support to farmers through cash transfers
was zero. In 2002, China began to subsidize grain farmers in selected counties of Jilin, Anhui, Henan, and Hubei provinces
(Gale et al., 2005). The total amount of the subsidy disbursed during this experimental period is not known. The subsidy program
went nationwide in 2004, distributing a total of 14.52 billion yuan (approximately $1.7 billion) to farmers as direct cash transfers.
The total grain subsidy consists of the direct grain subsidy for planting major grain crops (79.9% in 2004), the subsidy for using
quality grain crop seeds 6 (19.6%), and the subsidy for purchasing farming equipment (0.5%). Table 1 illustrates the composition
of the steadily increasing amount of the grain subsidy from 2004 to 2009. 7 The total grain subsidy is also given in levels and as a
percentage of China's agricultural output. A new category of grain subsidy called the comprehensive agricultural input subsidy
was introduced in 2006 and it has quickly grown in magnitude. The input subsidy is meant to compensate grain farmers for var-
iations in agricultural production costs, such as costs of fuel, fertilizers, pesticides, etc. It constituted 38.9% of the total grain sub-
sidy in 2006 and rose to 58.2% in 2009, replacing the direct grain subsidy as the most important subsidy category.
The methods by which the direct grain subsidy and the quality seed subsidy are paid vary from province to province. 8 In prac-
tice, most provinces use a per land unit 9 subsidy. According to He (2005), 69% of the subsidy-receiving provinces either paid the
subsidy based on the households' historical grain planting areas obtained from local tax records, e.g., Henan, Hunan, Ningxia, or
distributed the subsidy according to the actual planting area, e.g., Jiangsu, Zhejiang, Shandong, Guangdong. Provinces such as
Hubei gave local municipalities latitude to choose among the various payment methods. There are also great variations across
provinces in terms of the grain subsidy standard. For example, in Guizhou in 2004, the direct grain subsidy was set at 5 yuan
per mu; in Heilongjiang, the standard was set at 15 yuan per mu; in Shanghai, the direct grain subsidy standard was set much
higher, at 6080 yuan per mu (He, 2005).
The actual payment method adopted in Zhijiang is to distribute grain subsidies according to the households' actual grain
planting areas. Village officials verify households' actual grain planting areas for each crop after the planting decisions have
been made in each spring and record the amount and the composition of the subsidies in the Supervision Card of the Rural
Taxes and Fees Reform. The subsidy reached the rural households in Zhijiang as local bank deposits in the households' bank
accounts. Each eligible household is given an independent local bank account number and a deposit book that records the yearly
subsidy payment. The subsidy funds are credited to the households' bank accounts usually in mid summer, before the harvest.
Table 2 presents the grain subsidy standard in Zhijiang for 20042007. The direct grain subsidy and the quality seed subsidy
have been distributed in Zhijiang since 2004, the subsidy for purchasing farming equipment has never been implemented in
Zhijiang. The direct grain subsidy covers rice, wheat, and corn. The subsidy standard for rice has remained unchanged since
2004, the standard for wheat and corn dropped slightly in 2007. The quality seed subsidy only applies to rice and has remained
constant since 2004. Farmers who plant rice, wheat or corn began to receive the input subsidy in 2006. The input subsidy is also
based on the actual planting area, so it essentially increases the subsidy standard per mu for the already subsidized grain crops.

3
The agriculture-related taxes consist of agricultural tax, the animal husbandry tax, the tax on the use of cultivated land, the tax on special agricultural prod-
ucts and the contract tax. The agricultural tax alone in 2003 was only 1.7% of the total tax revenue in China. At the township and village level, however, the ag-
ricultural tax was a large share of local tax revenue. The lost tax revenue of the township government was compensated for by the central and provincial
governments. For a more detailed discussion, see Mai and Wiemer (2005).
4
According to Cheng (2008), China's most recent domestic support notication was for 19992001, and was submitted to the WTO Committee on Agriculture
in 2006, so whether the current grain subsidy falls into the green or amber box category is subject to debate. In any case, China's domestic support for agri-
culture between 1996 and 2009 is well below the limits agreed to at its WTO accession.
5
Hansen et al. (2011) also notes China's potential to increase support for farmers through direct and indirect subsidies while maintaining compliance with the
WTO agreement in the near future.
6
These are seeds of rice, soybeans, wheat, and corn.
7
Table 1 is comparable to a table in Hansen et al. (2011). The meaningful differences in Hansen et al. (2011) from Table 1 arise from the omission of the quality
seeds subsidy (2004) and the inclusion of minimum price procurement support (2006) by Hansen et al. (2011).
8
In total, 26 provinces received the grain subsidy. The grain subsidy program was not implemented in non-grain producing provinces, including Guangxi, Hai-
nan, Yunnan, Tibet, and Qinghai.
9
The land unit, mu, is equivalent to one sixth of an acre.
732 L. Meng / China Economic Review 23 (2012) 729741

Table 1
The percentage composition and magnitude of the grain subsidy.

Direct grain Quality seeds Equipment Input Total grain Share of agricultural

Subsidy Subsidy Subsidy Subsidy Subsidy Output

Year (%) (%) (%) (%) (billion yuan) (%)

2002 +
2003 +
2004 79.9 19.6 0.5 0 14.5 0.70
2005 76.7 21.5 1.7 0 17.2 0.75
2006 46.0 13.2 1.9 38.9 30.9 1.10
2007 30.9 10.3 2.5 56.4 48.9 1.70
2008 19.0 15.2 5.0 60.7 79.4 2.33
2009 12.3 18.9 10.6 58.2 123.1 3.47

Data source: Ministry of Finance.

Notes: Since 2002, China has been experimenting with direct grain subsidy in selected counties. However, the total amount of which is unknown. Agricultural
output is taken as the primary sector output from China's Statistical Yearbooks. The primary sector includes farming, forestry, animal husbandry, sideline
production, and fisheries. The total grain subsidy for 2008 was reported by the Ministry of Finance in early 2008 as 79.37 billion yuan. However, this figure
was reported in Premier Wen Jiabao's 2009 Report on the Work of the Central Government as 103 billion yuan, which amounts to over 3% of the agricultural
GDP in 2008. In this table I use the earlier figure in order to calculate the percentage compositions.

Farmers in Zhijiang only receive a subsidy if they plant rice, wheat or corn. If farmers have contracted out their land to other
people, who grow the subsidized crops, the grain subsidy is received by the land contractors. In 2005, an average rural house-
hold in Zhijiang was given 150 yuan in subsidy payments, about 1.5% of household net farm income. The payment rose to
288 yuan in 2007, about 2% of household net farm income.

3. Theoretical models of migration

How can China's grain subsidy program affect migration decisions? Economic theories of migration, as neatly summarized in
Taylor and Martin (2001), provide ways to think about different mechanisms through which the grain subsidy can affect migra-
tion. If the marginal product of labor in agriculture is nonzero, then how, in theory, the grain subsidy affects migration decisions
depends on the conditionality of the grain subsidy. The grain subsidy studied in this paper is based on the actual planting area,
i.e., households need to engage in grain production to receive the subsidy. This conditionality is credibly upheld by the local
officials who strictly inspect the actual planting area to prevent households from obtaining subsidies without production. In
this case, both the Todaro model (Todaro, 1969) and the New Economics of Labor Migration (NELM) model (Stark & Bloom,
1985) are useful in illustrating the theoretical underpinnings of how migration decisions can be altered by the distribution of
the grain subsidy.
In the Todaro model, the individual compares the discounted expected income at the rural origin to the discounted expected
income at the urban destination (net of moving cost). If the latter is larger than the former, the individual will migrate to the
urban sector. The grain subsidy could increase the expected rural earnings and alter the ratio of the expected rural to urban in-
come ratio, thereby deterring ruralurban migration. The NELM models the migration decision in a household context and
uses the household as the unit of analysis. The key insight is that people in the household act jointly to maximize income,

Table 2
The grain subsidy standard in Zhijiang (yuan per mu).

2003 2004 2005 2006 2007

Direct grain subsidy

Early-season rice 0 0 0 0 0
Mid-season rice 0 21.5 21.5 21.5 21.5
Late-season rice 0 21.5 21.5 21.5 21.5
Wheat 0 7.29 7.29 7.29 6.06
Corn 0 14.58 14.58 14.58 12.12

Quality seed subsidy

Early-season rice 0 10 10 10 10
Mid-season rice 0 15 15 15 15
Late-season rice 0 7 7 7 7
Wheat 0 0 0 0 0
Corn 0 0 0 0 0

Input subsidy 0 0 0 9.81 20.87

Data source: Author's survey in Zhijiang.

Notes: The input subsidy is given to subsidize input costs of grain production; the subsidized grain crops include rice, wheat, and corn. The input subsidy standard
is the same for all subsidized grain crops.
 L. Meng / China Economic Review 23 (2012) 729741 733

minimize risk and alleviate constraints created by imperfections in the capital and insurance markets, and it is these market im-
perfections that drive ruralurban migration. Facing incomplete capital and insurance markets, migrants can act like financial in-
termediaries that help the household increase its financial liquidity and insure itself against fluctuations in agricultural income.
According to the NELM model, the grain subsidy may decrease income uncertainty at the rural origin, decrease the need to diver-
sify risk, loosen capital constraints on agricultural production, and increase liquidity without sending out migrants, thereby dis-
couraging ruralurban migration. Also under the NELM model, when households face financial constraints, the grain subsidy may
make affordable the migration costs previously beyond their financial means, promoting rather than impeding migration. This is
the case when, in the absence of the grain subsidy, although urban work is preferred to rural work, households are credit con-
strained, unable to finance the moving costs and thus are unable to leave the countryside. The grain subsidy acts as an income
transfer that broadens the households' choice set and enables them to choose the migration option unavailable to them before.
In the present case, however, the grain subsidy is based on the current planting area so households do not receive the subsidy
if they fail to engage in current grain production. The migration incentive of the main labor in the household is therefore unlikely
to be encouraged as a result of the grain subsidy. The production-linked grain subsidy policy in the current context seems unlikely
to promote urbanbound migration.
The Todaro and NELM models both suggest a negative link between the grain subsidy and the ruralurban migration decision.
The grain subsidy could also positively influence the migration decision through relaxing farmers' financial constraints in meeting
migration costs. However, because the income transfer in our context is linked to production, this positive link may be absent if
the migrants are at the same time the main labor power in the households.

4. Data

I obtained the data for this study from the rural household surveys I conducted in Zhijiang municipality, Hubei province during
the Chinese Spring Festival in 20062008. Interviews with all household members are most likely during Chinese Spring Festivals
because household members who have been away during the year usually return home. A common problem in the rural house-
hold surveys is the absence of migrant household members who formally belong to the household according to their rural hukou
status yet are difficult to interview directly because they work away from home. This problem is minimized in this study as all
interviews are done during the Spring Festival period.
The survey design follows a stratified random sampling schedule. Since Zhijiang is naturally stratified into nine townships, six
or seven villages from each of the nine townships are randomly sampled, constituting 60 randomly sampled villages from a total
of 198 villages. In each of the randomly sampled villages, ten households reporting no migratory work at all in 2005 and ten
households reporting at least one member engaged in migratory work for at least three months in 2005 are randomly sampled.
The final sample consists of 1200 households. In order to account for the fact that the probability of migrant households being
sampled varies in each village, a preliminary survey was carried out in November 2005 by the local statistical bureau in all of
the sampled villages, involving all 31,032 households. The village accountant of each sampled village surveyed and reported to
the local statistical bureau the proportion of households in the village that have at least one member engaged in migratory
work for at least three months during 2005, resulting in sixty village-specific population proportions of migrant households.
These population proportions were then used to establish the probability weight for each household in this study to account
for the over- or under-sampling of migrant households in the survey design.
It should be noted that missing from the sampling frame are people who had permanently moved out of the countryside and
who had withdrawn their hukou status from the local village prior to the first survey in spring 2006. This could mean that the
remaining households are a non-random subset of people. This household selection problem could be a limitation of this
study. One special feature of my data is that I can uniquely identify the age, education background, and the household registration
status of the siblings of all household members. I treat the sibling data as a random sample to document villagers' permanent se-
lection out of the countryside. Based on this data, only 0.65% of the rural residents born in the 1940s and 1950s gained urban
household registration by spring 2006. The rural residents born in the 1960s and thereafter were more likely to have permanently
moved out of the countryside through obtaining urban hukou status, but the scale was still very limited. About 5% of the rural vil-
lagers born in the 1970s and 6% in the 1980s had gained urban hukou status by the beginning of 2006. Moreover, the attrition of
households from the initial survey is small. In total, 9 out of 1200 sampled households permanently moved out of the countryside
and changed their hukou registration by the time of the third round of the survey in 2008. Although household selection is indeed
a limitation of the study, it may not be of serious concern.
My survey data offers the following advantages to study the impact of the grain subsidy on migration decisions. First, the data
contains information on household planting history for the years 1982 to 2007. From the planting history, the rice farmers (the
treatment group) and the cotton farmers (the control group) can be categorized. The planting history is not simply recall data
from the household heads. Since the surveyors for this study are the village accountants, the village administrative data is used
to record the household land contract history. Although the village administrative data does not contain the detailed annual
planting decisions of each household, the village accountants still have approximate ideas of every household's planting behavior.
By the nature of their job as well as their in-depth knowledge of the community, the village accountants serve as a verifier and an
auditor for the households' recalled history of planting behaviors. The data is therefore more reliable than mere recall data. The
data also contains information on the annual migration decisions of all household members for the period 19852007. This infor-
mation allows me to construct and compare the historical migration trends of the rice and cotton farmers. A third feature is that
734 L. Meng / China Economic Review 23 (2012) 729741

Table 3
Agricultural crop planting area breakdown in Zhijiang (%).

Township Rice Cotton Oil crops Vegetables Other grain

Baiyang 48 0 25 13 14
Anfusi 46 0 31 10 13
Xiann 47 0 33 10 10
Wenan 47 3 35 7 8
Dongshi 43 3 25 12 17
Madian 13 6 16 52 13
Gudian 32 9 23 10 25
Bailizhou 1 30 10 13 46
Qixingtai 0 35 17 16 32

Data source: Published statistical data for the period 20012005 from Zhijiang's statistical bureau.
Notes: The numbers in the table have been averaged for the period 20012005. The agricultural crop planting area is about 91% of the total planting area. The total
planting area includes planting areas for beets and sugarcane, tobacco, medicinal herbs and floriculture, which are not considered agricultural crop planting areas.

the data includes the agricultural taxes paid by each sampled household since 2002, which allows me to explicitly estimate the
effect of the agricultural tax on the migration probability.

5. Rice and cotton farmers: treatment and control

Two of the most important crops produced in Zhijiang are rice and cotton. Rice and cotton require very different types of soil
and irrigation systems. Rice is often grown in paddies and is highly dependent on irrigation. Cotton production on the other hand
prefers light and sandy soil. Land that is suitable for cotton planting cannot be readily converted to planting rice due to the dif-
ficulty of adapting the irrigation systems. Since Zhijiang is situated along the banks of the middle section of the Yangtze river,
its alluvial soil close to the river banks is suitable for cotton production whereas its inland soil has been traditionally irrigated
to plant rice.
Table 3 shows the average planting area broken down in terms of the crops planted in each township for the period 20012005.
There are nine townships in Zhijiang, the best soil for cotton growing is concentrated in four townships (Qixingtai, Bailizhou, Gudian,
Madian) that have part of their land bordering the Yangtze river, two of these four townships, Qixingtai and Bailizhou, plant virtually
no rice at all. The townships further inland have been irrigated traditionally to grow rice, townships such as Baiyang, Anfusi, and
Xiann plant virtually no cotton. Although farmers within the cotton planting townships such as Qixingtai and Bailizhou do not
plant rice, they plant a great variety of other grain crops. 10 For example, farmers would plant summer-harvest grain crops,
such as wheat (which is also planted on dry land), before the cotton planting season. Table 4 shows the soil type break-down
in each township averaged for the period 20012005. Not surprisingly, the planting of rice and cotton correlates well with
the geographical location of and the soil type distribution in each township. In addition, being a rice or a cotton farmer can be
considered as a random event. Inter-village migration, except by marriage, is infeasible and very rare. Farmers in general cannot
change their crop production portfolios by moving into another village with a different soil endowment.
Based on each household's planting history since 1982, I define rice households as those who have planted a positive amount
of rice each year but never planted cotton and cotton households as those who have produced a positive amount of cotton each
year but never planted rice. According to my definitions, there are 619 rice households and 311 cotton households from the 1200
households surveyed. Table 5 compares the total average grain subsidies received by the rice and cotton households from 2005 to
2007, the total average grain subsidies in Table 5 is further broken down into rice, wheat, corn, and input subsidies for comparison
across subsidy categories.
As expected, the cotton households do not receive any of the rice subsidy. For the rice households, the average subsidies
received changed little from 2005 to 2007. Since the subsidy standard for rice (both the direct grain subsidy and the quality
seed subsidy) did not change during this period, this suggests that households kept their rice planting area almost unchanged
during this period. The same pattern can be observed for the wheat and corn subsidies across both the rice and cotton households
for 20052006. In 2007, both rice and cotton households received less wheat and corn subsidies because the subsidy standard for
the two crops decreased in 2007. The increase in the input subsidy as well as total subsidies received by both rice and cotton
farmers reflects the increasing subsidy standard of the input subsidy since 2006. Cotton households received nonzero grain sub-
sidies because of their wheat and corn production. On average, a cotton household received 26.5% of the amount that a rice
household received in terms of the total grain subsidy over 20052007.
As the grain subsidies are only paid to the selected grain crops, the geography in Zhijiang helps provide, albeit imperfectly, a
treatment group, those who mainly plant rice, and a control group, those who mainly plant cotton. I further define the locally born
household members from the rice households as rice farmers and the locally born household members from the cotton house-
holds as cotton farmers. In Table 6, I compare the characteristics of the rice and cotton farmers aged between 16 and 65 in
2003, a year prior to the policy shift. According to my definition, there are 1096 rice farmers and 627 cotton farmers from the

10
The local denition of other grain crops include wheat, barley, fava beans, peas, potatoes, corn, sorghum, soybeans, mung beans, sweet potatoes, and other
minor cereal crops. This denition differs considerably from the denition of grain crops used in other countries and in international statistics.
 L. Meng / China Economic Review 23 (2012) 729741 735

Table 4
Soil type breakdown in Zhijiang (%).

Township Irrigated land Dry land

Baiyang 73 27
Anfusi 85 15
Xiann 81 19
Wenan 80 20
Dongshi 71 29
Madian 25 74
Gudian 47 53
Bailizhou 3 97
Qixingtai 0 100

Data source: Published statistical data for the period 20012005 from Zhijiang's statistical bureau.
Notes: The numbers in the table have been averaged over 20012005.

Table 5
Subsidies to rice and cotton households in Zhijiang, 20052007.

Average household subsidy (yuan) Rice households Cotton households

2005 2006 2007 2005 2006 2007

Rice subsidy 202.4 204.6 203.1 0 0 0

Wheat subsidy 3.9 4.6 3.6 28 29.1 23.2
Corn subsidy 9.2 9.5 7.8 11.3 11.6 9.0
Input subsidy 0 85.4 177.4 0 47 95.4
Total average subsidy 215.5 304.1 391.9 39.3 87.7 127.6

Data source: Author's survey in Zhijiang.

Notes: Each grain subsidy is the sum of the direct grain subsidy and the quality seed subsidy. All calculations have been adjusted by using household weights.

619 rice households and 311 cotton households in 2003, respectively. Except for the variable of father's years of schooling, all the
mean differences of age, gender composition, proportion married, CCP membership share, own years of schooling, household size,
per capita land, and per capita net farm income are statistically insignificant (results not explicitly reported) for the two types of
farmers, indicating that the rice and cotton farmers are quite similar based on the observed characteristics prior to the policy shift.
Based on the longitudinal information contained in my data on the migration decisions of individuals from 1985 to 2007, I
compiled the migration rates (i.e., the percentage of working individuals who participated in migratory work for at least three
months during a given year) separately for rice and cotton farmers. Fig. 1 presents their corresponding historical migration trends.
In 1985, 3.09% of rice farmers and 2.52% of cotton farmers participated in rural-to-urban migration; by 2007, 17.14% of rice
farmers and 22.76% of cotton farmers engaged in migratory work. From 1985 to 2001, the percentage of cotton farmers involved
in migratory work had, in general, been below that of rice farmers, except for the years 1995, 1998 and 1999 during which the
percentage of cotton farmers engaged in migration was slightly above that of rice farmers. After 2001, the migration rate of cotton
farmers has been slightly higher than that of rice farmers. Nevertheless, the two groups seem to follow a similar upward trend
until 2004. In 2005, the percentage of rice farmers participating in migratory work dropped almost two percentage points from
the previous year 11 while the migration rate of the cotton farmers continued to trend up. The migration trend of rice farmers
increased again in 2006, but the wedge between the migration rate of rice farmers and cotton farmers widened. The plot of the
migration trends in Fig. 1 suggests that something negatively affected the migration trend of rice farmers in 2005 while exerting
no negative impact on the migration trend of cotton farmers.

6. Empirical specication and results

I use a difference-in-differences methodology to examine whether the grain subsidy program is stopping farmers from
engaging in migration. I study the migration decision at the individual level. Based on the Todaro model, a rural individual
will be motivated to migrate to the urban sector if his discounted future stream of urbanrural expected income differential
is positive (net of migration costs). I specify the following reduced form empirical model:

M it 0 RICEi 1 POST t 2 RICEi POST t X it it ; 1

t 0; ; T; i 1; ; N

11
It is important to note this drop does not coincide with the initiation of the grain subsidy program in 2004. The 2004 policy change came after the end of the
spring festival, at which time the migrants had already made their decisions to return to cities for another year and had left the countryside. The actual imple-
mentation of the subsidy came months after the announcement. Even though some migrants may have returned from the cities to take advantage of the policy
change, they may have already stayed in the cities for at least three months and were hence classied as migrants during 2004 according to my denition. This
might explain why the drop in migration rates took place in 2005 instead of 2004.
736 L. Meng / China Economic Review 23 (2012) 729741

Table 6
The characteristics of locally born rice and cotton farmers.

Rice farmers Cotton farmers

Age 37.22 36.26

Male 0.69 0.70
Marital status 0.76 0.74
Communist party member 0.07 0.07
Years of schooling 8.20 8.32
Father's years of schooling 4.82 5.28
Household size 4.01 3.97
Per capita land (in mu) 2.06 2.02
Per capita net farm income (in yuan) 2677 2779
No. of individuals 1096 627

Data source: Author's survey in Zhijiang.

Notes: Individual characteristics, except for own years of schooling, pertain to those aged 1665 in 2003, the year before the
policy shift. Own years of schooling is computed for the 2003 cohort using the 2005 data. Household size, per capita land, and
per capita net farm income are calculated for the 2003 cohort using the 2005 data. All calculations have been adjusted using
household weights. *, **, *** means that the mean difference between the rice and cotton farmers is significant at 10%, 5%, and
1% level, respectively.

where Mit is a measure of a person's participation in migratory work; it is a dummy variable equals to 1 if person i works away
from the local township for at least three months during a given year t. I use RICEi as a dummy variable equal to 1 for rice farmers
and 0 for cotton farmers and POSTt as the time dummy variable equal to 1 for the post 2004 regime observations. The vector Xit is a
collection of individual time-varying covariates; the error term it collects the unobserved random variables and shocks that the
individual experiences every period; it is assumed to take the form it = i + uit, where i is the individual fixed effect and uit is
assumed to be independently distributed conditional on (Xit, i). This assumption implies the migration decision is static.
Chinese migrants in general return home every year during the Chinese Spring Festival for the traditional family reunion.
Migrants use this time to settle financial obligations, plan family investment, reconnect with the local network of opportunities,
and initiate new job search. Research has shown that ruralurban migration in China is mostly circular (Li & Zahniser, 2002;
Zhao, 1999). Hu, Xu, and Chen (2011) shows that circular migrants are people with more dependents and more land at the
rural origin while those with more education and more experience are more likely to be permanent migrants. Even though cir-
cular ruralurban migration persists in China, the average migration duration of Chinese migrants tends to exceed one year.
When modeling yearly migration decisions, it is difficult to ignore the issue of state dependence, which happens if past mobility
choices affect current ones. The assumption of static migration choice is therefore restrictive. One way to relax this assumption
is to add the individual's lagged migration decision (i.e., last year's migration decision Mit 1) as an explanatory variable to the
basic model. By doing so, however, the assumption of conditional zero correlation Cov(uit, uj) = 0 for all (i, t) (j, ) is no longer
valid, and the problem of serial correlation must be explicitly dealt with.
The Difference-in-Differences (DID) estimator is:

   
^2 m
 rice;post2004 m
 rice;pre2004 m cotton;post2004 m
 cotton;pre2004
25
20
Migration rate (%)
15
10
5
0

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Year
rice farmers cotton farmers

Fig. 1. Migration trends of rice and cotton farmers, 19852007. Data source: Author's survey in Zhijiang. Notes: The migration rates of rice and cotton farmers who
were locally born and aged between 16 and 65 are calculated every year from 1985 to 2007. All calculations have been adjusted by household weights.
 L. Meng / China Economic Review 23 (2012) 729741 737

80
Price (in yuan)
70
60
50
2002 2003 2004 2005 2006 2007
Year
rice price in Zhijiang rice price in Hubei

Fig. 2. Prices of rice per 50 kg, 20022007. Data source: The rice prices in Zhijiang are from the local statistical bureau. The rice prices in Hubei are from the Com-
pendium of the Cost and Revenue of the Nation's Agricultural Products (various years).

where m  rice;post2004 m rice;pre2004 represents the sample average difference of the migration propensity of rice farmers over time


and m  cotton;post2004 m cotton;pre2004 represents the sample average difference of the migration propensity of cotton farmers over
time. The DID methodology compares the change in the average migration propensity of rice farmers to the change in the average
migration propensity of cotton farmers over the same period. When 2 b 0, this indicates that subsidizing grain production keeps
farmers from engaging in migratory, off-farm work. The key identification assumption is that the migration trends would be the
same for both types of farmers in the absence of the treatment, and it is the treatment (the subsidy program) that causes a
deviation from the common trend. The DID methodology ensures that any time-invariant differences between the treatment
and control groups in the pre-treatment stage will not confound the treatment effect. If factors, such as soil types, use of irriga-
tion, local policies, weather conditions, and occurrence of pests, differ between the rice and cotton farmers (and so differ across
townships) and are time-varying, the DID assumption is difficult to maintain.
Another imminent undermining factor of the DID assumption is the price movements of rice and cotton. If the price of rice
trended up relative to the price of cotton during the same treatment period, then rice farmers would also be less likely to migrate
than cotton farmers, confounding the causal link between the subsidy and migration probability. Figs. 2 and 3 present the local
and provincial price trends of rice and cotton from 2002 to 2007. At both the local and provincial level the rice price rose substan-
tially in 2004 before falling in 2005; locally the price increased 51% for mid-season rice in 2004 and fell 10% in 2005. In 2006, rice
prices stayed constant in Zhijiang, but for Hubei as a whole, rice prices continued to climb up. Cotton prices exhibit great variation
both at the local and provincial level, each with a similar trend. Unlike rice, cotton prices trended down in 2004 and went back up
a little in 2005. Higher crop prices can increase the discounted future stream of expected income at the rural origin and at a given
expected urban income dissuade migration by farmers. If an individual maximizes his utility by allocating time between farm
work, off-farm (migratory) work, and leisure, higher crop prices can exert both an income and a substitution effect, both implying
less off-farm work, thus reducing migration propensity. To control explicitly for the price effect on migration, I construct a
900
800
Price (in yuan)
700
600
500
400

2002 2003 2004 2005 2006 2007

Year
cotton price in Zhijiang cotton price in Hubei

Fig. 3. Prices of cotton per 50 kg, 20022007. Data source: The cotton prices in Zhijiang are from the local statistical bureau. The cotton prices in Hubei are from
the Compendium of the Cost and Revenue of the Nation's Agricultural Products (various years).
738 L. Meng / China Economic Review 23 (2012) 729741

Table 7
Descriptive statistics of the variables used in the regressions (in selected years).

2002 2007

Mean Std. Dev Mean Std. Dev

Dependent variable
Binary migration decision 0.15 (0.35) 0.17 (0.38)
Independent variables
Age 35.80 (12.90) 41.00 (12.80)
Marital status 0.75 (0.43) 0.81 (0.39)
Communist party member 0.07 (0.25) 0.08 (0.28)
Rice farmers 0.63 (0.48) 0.63 (0.48)
Weighted Zhijiang price 1.56 (1.74) 2.19 (2.43)
(hundred yuan/50 kg)
Weighted Hubei price 1.40 (1.53) 2.43 (2.69)
(hundred yuan/50 kg)
Weighted Hubei cost 3.12 (1.38) 4.51 (2.15)
(hundred yuan/mu)
Agricultural tax 5.31 (2.35) 0
(hundred yuan/household)
Observations 1723 1723

Data source: Author's survey in Zhijiang.

Notes: All calculations have been adjusted using household weights.

weighted agricultural crops price variable at the household level. The weights are the historical shares of household land used for
rice and cotton production. The local crop prices of rice and cotton are from the local statistical bureau, the provincial level crop
prices are from published official data (NDRC, 20032008).
The extended estimating equation includes the lagged dependent variable Mit 1 and a price effect Priceit:

M it 0 RICEi 1 POST t 2 RICEi POST t

3 M it1 4 Priceit X it it ; : 2
t 0; ; T; i 1; ; N

I specify the rice and cotton farmers in 2003 (1723 individuals in total) as the subjects of the analysis and follow their behavior
before and after the policy shifts over the period 20022007, making the sample data a balanced, six-year panel consisting of
10,338 observations. The descriptive statistics of the variables used in the regressions are given in Table 7.
Table 8 presents the regression results of the basic empirical model (in which migration is treated as a static choice) using a
fixed effect linear probability model. Standard errors are clustered at the household level to allow within-household correlation
since observations on individual migration within a household may be correlated in some way. Column (1) in Table 8 shows the
estimation results of Eq. (1). The dummy for rice farmers, a time invariant variable, drops out of the fixed effect estimation. After
controlling for the individual fixed effect, individual time-varying variables such as age and Communist Party membership are
not shown to have the negative effects on migration usually found in related studies. Married individuals are more likely to stay
on the farm, and the effect of marital status is statistically significant. The Post dummy picks up the macro-economic effects that
are common across the rice and cotton farmers after the 2004 policy shift, including the effect of the agricultural tax repeal. The
average migration rates in the post 2004 period increase for both types of farmers relative to the average migration rates in the
pre-policy shift period. The coefficient estimate of the interaction of the Rice and Post dummies, which is the DID estimate, is
negative and statistically significant, consistent with the expectation that the grain subsidy program is holding farmers from
engaging in migratory, off-farm work. Although the average migration rates were higher for both rice and cotton farmers in
the post 2004 periods, the rise in the migration probability of rice farmers was about 5 percentage points smaller than the
rise in the migration probability of cotton farmers. This result holds when the crop price effects are explicitly taken into consid-
eration. Column (2) of Table 8 adds Zhijiang's local price vector as a regressor, while column (3) uses the price vector at the pro-
vincial level. Both price vectors are weighted by the households' historical shares of land used for rice and cotton production. As
expected, price exerts a negative impact on the migration propensity and the effect is statistically significant.
I then relax the static migration assumption and consider dynamics in the migration decision. Specifically I assume that
Cov(uit, uj) = 0 whenever i j for any t and but allow correlation across different time periods for the same individual. I
deal with the problem of serial correlation in this case by clustering the standard errors at the individual level. The regression
results show that including the lagged migration decision does not affect the key conclusions. In addition to the price effect, I
also explicitly estimate the agricultural tax effect. I use the retrospective information on the amount of agricultural tax paid
since 2002 to construct an agricultural tax variable at the household level. The first two columns in Table 9 provide the regres-
sion results explicitly controlling for the agricultural tax effect on migration. As expected, higher taxes push farmers out of
agriculture and into migratory work. The statistically significant result shows that raising the amount of the agricultural tax
on a household by 100 yuan increases the probability of migration by 0.006, or 0.6 percentage point. The value of the DID
 L. Meng / China Economic Review 23 (2012) 729741 739

Table 8
Individual fixed effect linear probability model of migration decision using 20022007 data.

Dependent variable:

Binary migration decision (1) (2) (3)

Age 0.0005 0.0005 0.0005

(0.004) (0.004) (0.004)
Marital status 0.09 0.09 0.09
(0.03) (0.03) (0.03)
Communist party member 0.016 0.01 0.01
(0.04) (0.04) (0.04)
Post 2004 0.034 0.04 0.04
(0.015) (0.015) (0.015)
Rice farmersPost 2004 0.045 0.05 0.05
(0.015) (0.01) (0.01)
Weighted Zhijiang 0.009
price (0.005)
Weighted Hubei 0.007
price (0.004)
Year dummies Yes Yes Yes
Constant 0.28 0.29 0.29
(0.16) (0.15) (0.15)
R-squared 0.6687 0.6688 0.6688
Observations 10,338 10,338 10,338

Data source: Author's survey in Zhijiang.

Notes: Standard errors are clustered at the household level. All calculations have been adjusted using household weights. *, **, *** means that the
estimated coefficient is significant at 10%, 5%, and 1% level, respectively.

estimator is unaffected and remains statistically significant. The estimated coefficient of the Post 2004 dummy decreases in
value and also loses its statistical significance, indicating that the Post 2004 dummy estimated in Table 8 was capturing the
tax repeal effect. I further check the robustness of the results by accounting for how production costs change over time. Between
2002 and 2007, the costs of production (per mu) for rice and cotton steadily rose (except for a drop for cotton in 2003), with an
average annual increase of 6.8% for rice (mid-season rice) and 9.3% for cotton. I use the cost vector from the published Hubei
province data and the historical shares of household land used for rice and cotton production to construct a weighted agricul-
tural crops cost variable at the household level. I present the regression results controlling for the cost movements in the last
two columns of Table 9. The magnitudes of the price effect (using both the local and provincial data) are the same. The standard
errors slightly increase, and the effect is no longer statistically significant. The tax effect is still statistically significant and has the
expected sign. The coefficient estimates of the cost effect are not statistically significant. If weather conditions and occurrence of
pests varied over the period 20022007 and differences existed between the rice growing and cotton growing townships, these
time varying differences could challenge the common trend assumption crucial to the DID estimation. I include the township
specific time trends to all of the specifications in Table 9 to allow the treatment and control groups at the township level to fol-
low different migration trends in a limited way. Adding the township specific time trends serve as an alternative check on the
DID identification strategy; the key estimation results remain unchanged.
The price coefficients in the regression results in Tables 8 and 9 suggest that if the weighted crop price (per 500 g) increased
by 1 yuan, migration probability would decrease by approximately 0.01. Taking the change in the weighted prices (for Hubei) be-
tween 2002 and 2007 in Table 7 together with the estimated price coefficients in Tables 8 and 9, the impact of the price rise in
20022007 was to reduce Zhijiang farmers' migration probability by approximately one percentage point. The DID estimate re-
veals the treatment effect of the introduction of the subsidy on the treated farmers. The results in Tables 8 and 9 suggest that
the subsidy program reduced farmers' migration probability by 5 percentage points during the period 20022007, which is
much larger than the estimated impact of the price rise during the same period. Given that the monetary amount of the subsidy
is only a meager addition to household income, this result seems surprising.
One possible explanation is that the DID estimate measures the policy impact on migration, i.e., the treatment effect of the sub-
sidy program on rural people's migration probability, and this is not necessarily equivalent to the treatment effect of the mone-
tary value of the subsidy amount on people's migration probability. Besides cash transfers, the subsidy program involves village
officials' inspection of the actual grain plantation, book keeping of the subsidy for the household and a new bank account opened
specifically for payment of the subsidy to the household. The program thus reflects an administrative support for agriculture that
is in sharp contrast to years of predatory taxing and pricing policy toward agriculture. Despite the meager subsidy amount, the
subsidy program may signal to farmers a new and committed pro-rural stance of the central government and encourage farmers
to expect favorable rural policy from the government in the future. This may in turn change farmers' assessment of the probability
of finding local rural employment (both on and off-farm), raise their discounted future streams of expected income in the rural
sector, and make a given expected urban wage less attractive to potential migrants. A crop price increase may not alter expecta-
tions (with regard to rural policy) to the same degree as that of an official subsidy program.
740 L. Meng / China Economic Review 23 (2012) 729741

Table 9
Individual fixed effect linear probability model of migration decision using 20022007 data, robustness checks.

Dependent variable:

Binary migration decision (1) (2) (3) (4)

Lagged decision 0.217 0.217 0.217 0.217

(0.022) (0.022) (0.022) (0.022)
Age 0.0007 0.0008 0.0008 0.0008
(0.004) (0.004) (0.004) (0.004)
Marital status 0.07 0.07 0.07 0.07
(0.03) (0.03) (0.03) (0.03)
Communist party member 0.035 0.035 0.035 0.035
(0.04) (0.04) (0.04) (0.04)
Post 2004 0.02 0.02 0.02 0.02
(0.02) (0.02) (0.02) (0.02)
Rice farmers post 2004 0.05 0.05 0.05 0.05
(0.02) (0.02) (0.02) (0.02)
Weighted Zhijiang 0.01 0.01
price (0.006) (0.007)
Weighted Hubei 0.008 0.008
price (0.0045) (0.005)
Agricultural tax 0.006 0.006 0.006 0.006
(0.003) (0.003) (0.003) (0.003)
Weighted Hubei 0.002 0.003
cost (0.02) (0.02)
Year dummies Yes Yes Yes Yes
Township specific Yes Yes Yes Yes
time trends
Constant 0.27 0.27 0.26 0.26
(0.17) (0.17) (0.18) (0.18)
R-squared 0.6851 0.6852 0.6851 0.6852
Observations 10,338 10,338 10,338 10,338

Data source: Author's survey in Zhijiang.

Notes: Standard errors are clustered at the individual level. All calculations have been adjusted using household weights. *, **, *** means that the estimated
coefficient is significant at 10%, 5%, and 1% level, respectively.

Table 10 offers a closer look at those who actually suspended their migration activities after the 2004 policy shift. Migrants in
2004 are grouped according to their migration status in 2005. The nonmigrants in 2005 are those who migrated in 2004 but not in
2005, the migrants in 2005 are those who engaged in migratory work in both 2004 and 2005. In the first two columns, I compare

Table 10
Characteristics of nonmigrants and migrants.

Nonmigrants in 2005 Migrants in 2005

Rice farmers Cotton farmers Rice farmers Cotton farmers

Age 30.20 31.30 1.17 29.20 28.60 0.70

(2.14) (0.90)
Male 0.59 0.60 0.01 0.61 0.58 0.03
(0.12) (0.05)
Marital status 0.66 0.72 0.06 0.57 0.58 0.01
(0.12) (0.05)
CCP member 0.02 0 0.02 0.01 0.007 0.004
(0.008)
Years of schooling 9.22 8.96 0.26 9.14 8.92 0.22
(0.32) (0.17)
Father's schooling 6.04 5.76 0.28 6.59 6.85 0.25
(0.90) (0.27)
Skill in farming 0.64 0.70 0.06 0.45 0.44 0.02
(0.12) (0.05)
Household size 4.23 4.17 0.06 4.19 4.25 0.06
(0.25) (0.10)
Per capita land 1.8 1.88 0.08 1.73 1.69 0.04
(0.20) (0.09)
Enrolled children 0.51 0.59 0.08 0.52 0.43 0.09
(0.12) (0.05)
No. of individuals 74 31 372 229

Data source: Author's survey in Zhijiang.

Notes: There are 148 individuals who migrated in 2004 but didn't in 2005; 105 of these individuals are either rice or cotton farmers. There are 816 individuals
who migrated in 2004 and continued to migrate in 2005; 601 of these individuals are either rice or cotton farmers. All calculations have been adjusted using
household weights. *, **, *** means that the mean difference is significant at 10%, 5%, and 1% level, respectively.
 L. Meng / China Economic Review 23 (2012) 729741 741

the characteristics of the rice nonmigrants to the cotton nonmigrants along some individual and household dimensions. The rice
nonmigrants are very similar to the cotton nonmigrants in 2005 in terms of age, gender, marital status, CCP membership status,
years of schooling, father's years of schooling, skill in farming, household size, per capita land, and the existence of enrolled chil-
dren within the household; none of the mean differences along the above dimensions are statistically significant. However, 70% of
the nonmigrants in 2005 are rice farmers. This is consistent with the observation that rice farmers are the major beneficiary of the
subsidy program. The characteristics of rice and cotton migrants in 2005, as shown in columns four and five, are also quite similar;
only the mean difference of having enrolled children at home is statistically significant. Rice farmers also constitute the bulk of the
migrants (about 62%) in 2005, which could reflect a lower average income status of rice farmers. When skill in farming is consid-
ered, regardless of the crop type, those who self-reported to be skilled in farming overwhelmingly suspended their migration sta-
tus in 2005 (the differences are statistically significant but the results are not reported in Table 10). In other words, the 2004
migrants who have more specific human capital in farming are more likely to be nonmigrants in 2005. This observation is consis-
tent with the favorable agricultural policy instituted since the 2004 policy shift.

7. Conclusion

In this paper I use a difference-in-differences methodology to examine if China's grain subsidy program can keep farmers from
engaging in migratory work in Zhijiang, Hubei province. The identification strategy makes use of Zhijiang's unique geographical
setting which produces a treatment group (rice farmers) and a control group (cotton farmers). My results show that the grain
subsidy program reduced the migration propensity of the treated rice farmers more than that of the cotton farmers in the post
2004 period. Among the experienced migrants who seem to have responded to the subsidy program, an overwhelming propor-
tion self-reported to be skilled in farming. This also suggests that China's grain subsidy program, when it is linked to production,
could keep potential migrants who possess more specific human capital in farming to remain at the rural origin.

Acknowledgment

I thank Orn Bodvarsson, Xia Li, Shihe Fu, Brett Graham and seminar participants at the 2010 Workshop on Employment
Dynamics and Social Security at Fudan University; the Migration and Ethnicity section of the 2010 China Economist Society
Annual Conference at Xiamen University; the Southwestern University of Finance and Economics for helpful comments. I am
grateful for the comments from two anonymous referees. Research funding from the Center on Pacific Economies at University
of California, San Diego and the Pacific Rim Research Program is gratefully acknowledged. Guangliang Yang provided excellent
research assistance.

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